(FROM THE WALL STREET JOURNAL 7/30/15)
By Deepa Seetharaman
Facebook Inc. offered fresh evidence of its allure to
deep-pocketed big brands, as it and Google Inc. increasingly take
the lion's share of the fast-growing mobile advertising market.
The social networking company posted a 39% increase in quarterly
revenue, nearly three-fourths of which came from advertising on
mobile devices. Expenses grew faster than revenue, but executives
said the company would spend less than previously forecast this
year, which will boost profitability.
The jump in Facebook's quarterly revenue reflects how larger
companies are spending more to capture an audience that spends a
large chunk of time on Facebook. Analysts estimate that consumers
spend between one-fifth and one-third of their time on mobile
devices on Facebook-owned apps. Users now spend more than 46
minutes a day on average on Facebook and its other properties,
including Facebook Messenger and photo-sharing app Instagram, Chief
Executive Mark Zuckerberg said.
Market researcher eMarketer says that together, Facebook and
Google will capture more than half of the $69 billion world-wide
mobile-advertising market this year. Google leads, with 35% share,
but Facebook is growing faster.
Facebook's results stand in contrast to other tech firms that
increasingly rely on mobile users and advertisers for growth.
Twitter Inc.'s shares tumbled 14% Wednesday after it reported a
weak gain in new users. Investors also punished Yelp Inc., sending
its shares down 25%, after the online reviews site lowered its
revenue outlook.
Beyond mobile ads, Facebook and Google increasingly compete in
areas ranging from streaming video to virtual reality and search.
Mr. Zuckerberg told analysts on a conference call that Facebook
users now conduct about 1.5 billion searches a day. Facebook has
indexed more than two trillion posts.
"I actually think in some ways they're very similar," said Mark
Mahaney, an analyst for RBC Capital Markets. Both are companies
with more than a billion users "that can layer in more revenue
streams over time."
Facebook, for example, is beefing up the ad capabilities of
Instagram, which it bought in 2012 and generates almost no revenue
today. Many Instagram users are in the under-35 demographic coveted
by advertisers.
Facebook also said it would start sharing ad revenue with video
creators in a bid to attract more high-quality videos and grab a
piece of advertisers' television budgets.
In fact, Facebook today resembles even more closely a younger
Google -- growing rapidly with enviable profit margins. Excluding
the impact of the rising dollar, Facebook said revenue would have
increased 50%, and advertising revenue by 55%.
Brian Wieser, an analyst with Pivotal Research Group, called it
"remarkable" for "a company this size to keep growing that
fast."
Advertisers say they are spending more on Facebook because it
allows them to target users narrowly, such as people who have been
engaged in the last six months or people who download gaming
apps.
"Our investment in Facebook as an advertising channel grew
significantly over the past year in comparison to other channels,"
said Cameron Deatsch, head of growth marketing for Australian
enterprise software company Atlassian. "We feel we are still just
scratching the surface when it comes to advertising on
Facebook."
Expectations were high ahead of Facebook's second-quarter
earnings, especially after strong results from Google and
Amazon.com Inc. On July 20, the 11-year-old social network's market
value surpassed that of General Electric Co. for the first time.
Facebook shares have risen 24% so far this year, far outpacing the
7.9% rise in the Nasdaq Composite Index. Facebook shares fell 3%
after the results were released late Wednesday.
Facebook said second-quarter revenue reached $4.04 billion, up
from $2.91 billion in the same period a year earlier.
Net income declined 9.1%, to $719 million, reflecting Facebook's
continued heavy spending, particularly on employees.
Costs and expenses rose 82% in the second quarter with
research-and-development costs more than doubling.
Mr. Zuckerberg has previously said this would be a year of heavy
investment in data centers, new hires and other long-term
initiatives, including virtual reality and solar-powered drones.
Wednesday, the company trimmed its forecast for expense growth,
saying expenses would rise as much as 60% this year, down from its
previous projection of up to 65%.
The company said 1.49 billion people now check Facebook at least
once a month. Of those, Facebook said 968 million check in
daily.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires